5 Ways Etailers Can Fight Chargeback Fraud

This holiday selling season may have been a good one for retailers, but every silver lining has a cloud. In this case, one shadow will be cast by chargeback fraud, which can occur when shoppers make purchases with a credit card and then request chargebacks from the issuing bank instead of from the merchant.

“Merchants bleed (US)$227 for every dollar lost to e-commerce fraud,” said Robert Capps, authentication strategist at NuData Security, citing data from Kount, a fraud and risk management solutions provider.

Etailers are “more susceptible to chargebacks, as they deal in card-not-present transactions,” observed Monica Eaton-Cardone, COO of Chargebacks911.

“Deliberate chargeback fraud is predicated on the idea that the cardholder didn’t approve the transaction,” Eaton-Cardone told the E-Commerce Times. “The more distance between a cardholder and the merchant, the harder it is to verity the customer’s identity, and the greater the risk that the transaction will turn into a chargeback.”

Opening up to more remote channels “will make the need for chargeback mitigation greater than ever,” she said. Chargeback911 projects chargeback costs will total about $25 billion by 2020, and “many of those” will be fraudulent.

Digital goods sold online have the highest chargeback rates, “often above 1 percent,” he told the E-Commerce Times. That’s partly because online fraudsters can be anywhere and transact any time, and partly because the laws for online crimes are more difficult to enforce.

“Stealing a $4,000 TV from bestbuy.com has a much lower penalty than stealing $400 from a 7/11,” Lee pointed out.

However, there are actions etailers can take to mitigate the risk.

1. Beef Up Website Security

The merchant’s website “is primarily where the most fraud occurs in regard to the merchant’s responsibility,” Capps remarked.

“Direct Web access to the merchant site is probably the best attack point for a fraudster, since that merchant is alone and often doesn’t have the protection in place to stop abuse on their site,” Sift’s Lee said.

3. Turn to the Experts

They should look at solutions that shift the responsibility for verifying transactions back to the card issuer or a third party that will guarantee the transaction.

The cost of such services often is less than the cost of the fraud they could incur, Capps pointed out.

“The best approach to deal with chargebacks is to outsource them to a firm with the necessary expertise,” Eaton-Cardone said.

“If fraud prevention isn’t viewed as a core competitive advantage, partner with an external company like Sift Science that specializes in [combating] this type of abuse,” Lee said.

4. Change Your Approach to Suit the Times

Don’t rely on traditional approaches, Lee cautioned.

“The traditional way is to create rules on what types of transactions a merchant wants to accept or decline,” he said. Such rules might include requiring presentation of a driver’s license to verify identity, and declining transactions where billing and shipping addresses don’t match, for example.

These rules do curtail fraud, but also might turn away potential customers.

“Consumers tend to have even less patience in this on-demand, instant gratification economy,” Lee noted.

“The only sustainable way to keep fraud under control is a combination of several factors,” he said, including the following:

Machine learning models that analyze user behavior in real time and can predict the probability of fraud;

Manual review of cases that fall into grey areas, as “the human ability to understand context is invaluable and cannot be replaced,” according to Lee; and,

Rules, because “some things just can’t be allowed to happen.”

5. Be Aware of Outside Events

The recent Equifax breach, which may have compromised the personal information of 143 million people, is going to make things more dangerous for retailers, Eaton-Cardone warned, as it may lead to an increase in chargeback fraud.

“Thanks to the EMV liability shift, the cost of the Equifax incident will overwhelmingly impact online retailers,” she said. “We just don’t know how much it will cost yet.”

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Did you know ?

The Internet is the global system of interconnected computer networks that use the Internet protocol suite (TCP/IP) to link devices worldwide.

Approximately 3.2 billion people use the internet. Out of this, 1.7 billion of internet users are Asians. In fact, it is estimated that approximately 200 billion emails and 3 billion Google search would have to wait if the internet goes down for a day.

30,000 websites are hacked every day. Highly effective computer software programs are used by cybercriminals to automatically detect vulnerable websites which can be hacked easily.

First webcam was created at the University Of Cambridge to monitor the Trojan coffee pot. A live 128×128 grayscale picture of the state of the coffee pot was provided as the video feed.

Internet sends approximately 204 million emails per minute and 70% of all the mails sent are spam. 2 billion electrons are required to produce a single email.

First tweet was done on 21st March, 2006 by Jack Dorsey and the first YouTube video to be uploaded was “Meet At Zoo” at 8:27 p.m. on Saturday, April 23, 2005 by Jawed Karim.

The majority of internet traffic is not generated by humans, but by bots and malware. According to a recent study conducted by Incapsula, 61.5% or nearly two-thirds of all the website traffic is caused by Internet bots.

In 2005, broadband internet had a maximum speed of 2 Megabits per second. Today, 100Mbps download speeds are available in many parts of the country. But experts warn that science has reached its limit and fiber optics can take no more data.

The first spam email was sent in 1978 over ARPNET by a guy named Gary Thuerk. He was selling computers.

Online shoppers can buy cars, clothes and millions of other things with the click of a button and figurative swipe of a credit card. In fact, U.S. consumers spend $1,200-$1,300 per year online, but that number will increase by 44%, to $1,738, by 2016. In that year, ecommerce sales are expected to hit $327 billion.

By 2016 the total transaction value of mobile payments in the U.S. hit $62.24 billion. The user base is still relatively small, with only 7.9 million users in 2012. Usage should grow during the next few years to over 50 million mobile payment users by 2017.

51% of people who did not complete a purchase on a mobile device stopped because they did not feel comfortable entering their credit card details

81 percent of people research online before buying it either offline or online.

Only 60 percent of people use search engines to search the products, the rest 40 percent directly land on the ecommerce portals or have direct links

An average online shopper visits the target platform at least 3 times before finalizing the product.

33 percent of online sales take place after 6PM, likely due to the fact that people get back from offices around then, giving them some private time to think of themselves and their needs.